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Japan Cabinet OKs Extra Spending

November 22, 2002

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TOKYO (AP) _ Japan’s Cabinet approved a 3 trillion yen ($24 billion) extra spending package Friday for public projects and other measures that analysts quickly criticized as far too small to revive the feeble economy.

After days of wrangling between Prime Minister Junichiro Koizumi, who is determined to rein in public works projects, and politicians dependent on construction lobbies for votes, the ruling coalition agreed on the supplementary budget late Thursday.

The budget earmarks 1.5 trillion yen ($12 billion) for public works and another 1.5 trillion yen for ``safety net″ measures to help small businesses and to create jobs.

Japan’s economy has been in a slowdown for more than 10 years, but has shown signs of deterioration recently.

The Tokyo stock market has plunged to 19-year lows, and the share prices of Japan’s leading banks are crashing as investors fear that Koizumi’s promise to tackle bad debts at the nation’s banks will lead to corporate bankruptcies _ and possibly the nationalization of a major bank.

``The move toward recovery has slowed, and the situation surrounding prospects for the economy is growing more uncertain,″ Koizumi told his ministers Friday. Copies of his comments were released to the media.

The spending plan needs parliamentary approval, but the ruling coalition controls the majority in parliament.

Analysts called the extra spending inadequate for a rebound.

Japan is suffering from deflation _ continually falling prices that increase debt values, depress corporate profits and shrivel paychecks.

``Even if the number had an extra zero at the end and was 10 times the amount, getting out of deflation isn’t possible,″ said Koji Shimamoto, chief economist at BNP Paribas in Tokyo. ``Recovery simply isn’t possible with just public works.″

But Shimamoto said Koizumi should be commended for at least sticking with his agenda of reforms. Koizumi has been trying to rein in excessive government spending because he is worried about Japan’s ballooning public debt.

Tokyo share prices rose in morning trading, partly cheered by a rally on Wall Street, but also underlining hopes for Japan’s commitment to reform. The benchmark Nikkei Stock Average ended the morning session up 1.32 percent.

As part of his reform efforts, Koizumi has appointed a government panel to tackle the bad debts at the banks and revive money-losing companies. A package of policies, including a tighter monitoring of the banks’ books, is expected next week.

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